UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 0-11560
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SAVOIR TECHNOLOGY GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 94-2414428
- --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
254 E. Hacienda Avenue, Campbell, CA
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(Address of principal executive offices)
95008
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(Zip Code)
(408) 379-0177
-------------------------------
(Registrant's telephone number,
including area code)
N/A
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(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
YES /X/ NO / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 8, 1998
---------------------------- --------------------------
Common Stock $0.01 par value 8,609,097
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SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Statements of Operations for the Three Months
Ended March 31, 1998 and 1997 3
Consolidated Balance Sheets at March 31, 1998 and
December 31, 1997 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 20
Index to Exhibits 21
When used in this Report, the words "estimate," "project," "intend" and
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially. For a discussion of certain such
risks, see "Factors That May Affect Future Results" on page 10. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release updates or revisions to these statements.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
<TABLE>
SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<CAPTION>
For the Three Months
Ended March 31,
------------------------------------------
1998 1997
------------------ -----------------
<S> <C> <C>
Net sales $ 100,504 $ 35,950
Cost of goods sold 87,443 29,981
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Gross profit 13,061 5,969
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Gross profit as % of net sales 13.00% 16.60%
Selling, general and administrative expenses 9,226 4,803
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Operating income 3,835 1,166
Interest expense 1,709 432
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Income before income taxes 2,126 734
Provision for income taxes 1,033 191
----------------- -----------------
Net income $ 1,093 $ 543
================== =================
Net income per share:
Basic $ 0.12 $ 0.12
================== =================
Diluted $ 0.11 $ 0.11
================== =================
Number of shares used in per share calculations:
Basic 5,448 4,558
================== =================
Diluted 6,167 4,977
================== =================
The accompanying notes are an integral part
of these financial statements.
</TABLE>
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<TABLE>
SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
------------------- --------------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 3,857 $ 2,919
Trade accounts receivable, net of allowance for
doubtful accounts of $533 at March 31, 1998 and
$319 at December 31, 1997 63,925 76,664
Inventories 36,864 36,841
Other current assets 13,414 7,388
------------------ --------------------
Total current assets 118,060 123,812
Property and equipment, net 4,785 4,920
Excess of cost over acquired net assets and other
intangibles, net 57,180 57,537
Other assets 497 619
------------------ --------------------
$ 180,522 $ 186,888
================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 20,151 $ 7,063
Current portion of long-term debt 8,610 8,516
Accounts payable 78,020 96,143
Accrued expenses 4,455 5,636
------------------ --------------------
Total current liabilities 111,236 117,358
Long-term debt, less current portion 18,894 22,330
Other 91 120
Commitments and contingencies
Stockholders' Equity:
Preferred Stock, $0.01 par value, 10,000,000 shares authorized; issued and
outstanding: 2,242,500 shares Series A and 10 shares Series B at March 31,
1998 and December 31, 1997; liquidation preference of
$21,444 at March 31, 1998 and December 31, 1997 22 22
Common Stock, $0.01 par value, 25,000,000 shares
authorized; issued and outstanding: 5,494,258 at
March 31, 1998 and 5,357,678 at December 31, 1997 55 54
Additional Paid-in Capital 48,651 46,039
Retained earnings 1,573 965
------------------ --------------------
Total stockholders' equity 50,301 47,080
------------------ --------------------
$ 180,522 $ 186,888
================== ====================
The accompanying notes are an integral part
of these financial statements.
</TABLE>
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<TABLE>
SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<CAPTION>
For the Three Months
Ended March 31,
---------------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,093 $ 543
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 1,201 393
Accretion on long-term debt obligations 526 --
Provision for doubtful accounts receivable 130 110
Change in assets and liabilities:
Accounts receivable 12,609 (1,177)
Inventories (23) 6,275
Other current assets (6,026) (792)
Other assets 122 32
Accounts payable (18,123) (8,261)
Accrued expenses and other (1,181) (5)
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Net cash used in operating activities (9,672) (2,882)
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Cash flows from investing activities:
Acquisition of business, net of cash acquired -- 573
Acquisition of other assets (45) --
Acquisition of property and equipment (248) (396)
Net cash provided by (used in) investing activities (293) 177
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Cash flows from financing activities:
Proceeds from short-term borrowings 69,351 10,683
Payments on short-term borrowings (55,862) (6,882)
Payments on long-term debt obligations (2,958) (51)
Proceeds from exercise of stock options 247 18
Proceeds from employee stock purchase plan 125 120
Proceeds from equipment loan -- 557
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Net cash provided by financing activities 10,903 4,445
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Net increase in cash 938 1,740
Cash--beginning of period 2,919 384
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Cash--end of period $ 3,857 $ 2,124
============= ==============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
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SAVOIR TECHNOLOGY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
Note 1: The unaudited consolidated financial statements which include
the accounts of Savoir Technology Group, Inc. and its subsidiaries
(the Company) have been prepared in accordance with the
instructions to Form 10-Q and do not include all information and
footnotes necessary to comply with generally accepted accounting
principles. In the opinion of management, all normal recurring
adjustments considered necessary for a fair presentation have been
included. The consolidated statements of operations for the three
months ended March 31, 1998 are not necessarily indicative of the
results to be expected for a full year or for any other period.
The December 31, 1997 balance sheet was derived from audited
financial statements, but does not include all disclosures
required by generally accepted accounting principles. It is
suggested that these financial statements be read in conjunction
with the financial statements and the notes thereto included in
the Company's latest audited financial statements for the year
ended December 31, 1997.
Note 2: The Company adopted the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. This statement requires the disclosure
of comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is
defined as net income plus revenues, expenses, gains and losses
that, under generally accepted accounting principles, are excluded
from net income. The components of comprehensive income which are
excluded from net income are not significant, individually or in
the aggregate, and therefore, no separate statement of
comprehensive income has been presented.
Note 3: In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 (SFAS 131),
"Disclosures about Segments of an Enterprise and Related Informa-
tion." This statement establishes standards for disclosure about
operating segments in annual finan- cial statements and selected
information in interim financial reports. It also establishes
standards for related disclosures about products and services,
geographic areas and major customers. This state- ment supersedes
Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise." The new standard
becomes effective for fiscal years beginning after December 15,
1997, with interim reporting disclosures required in the first
quarter immediately subsequent to the year in which SFAS 131 is
adopted, and requires that comparative information from earlier
years be restated to conform to the requirements of this standard.
The Company is evaluating the requirements of SFAS 131 and the
effects, if any, on the Company's current reporting and
disclosures.
Note 4: The Company has an inventory and working capital financing
agreement (the IBMCC Credit Facility) with IBM Credit Corporation
(IBMCC), an affiliate of International Business Machines
Corporation (IBM), whereby purchases from IBM and cash advances
from IBMCC are directly charged to the IBMCC Credit Facility and
are paid by the Company based on payment terms outlined in the
agree- ment. Total borrowings under the IBMCC Credit Facility are
based on eligible accounts receivable and inventory, as defined in
the IBMCC Credit Facility, and are limited to $75,000,000. The
IBMCC Credit Facility is renewable in September 1999 and contains
restrictive covenants which include the maintenance of minimum
current ratio, tangible net worth and times interest earned ratio,
as defined in the IBMCC Credit Facility, and is collateralized by
substantially all assets of the Company. The Company was not in
compliance with the times interest earned ratio covenant at March
31, 1998. IBMCC granted a waiver as of March 31, 1998 for the
specific violation. Borrowings under the IBMCC Credit Facility
were $20,134,000 at March 31, 1998. Cash advances bear interest at
prime
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(8.5% at March 31, 1998) plus 1.875%. Based on eligible assets, as
of March 31, 1998, the Company had borrowings available of
approximately $2,807,000.
Note 5: Revenue Recognition and Accounts Receivable: The Company
records revenue, net of allowances for estimated returns, at the
time of product shipment. To reduce credit risk, the Company
performs ongoing credit evaluations and has credit insurance.
Note 6: Inventories, consisting primarily of purchased product held for
resale, are stated at the lower of cost (first-in, first-out) or
net realizable value.
Note 7: Supplemental Cash Flow Information: Cash paid for interest in
the three-month periods ended March 31, 1998 and 1997 was
$1,186,000 and $436,000, respectively.
Note 8: In accordance with the disclosure requirements of SFAS 128, a
reconciliation of the numerator and denominator of basic and
diluted EPS is provided as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-------------------------
1998 1997
------- ---------
<S> <C> <C>
Numerator--basic and diluted EPS
Net income................................................ $ 1,093 $ 543
Less: preferred stock dividends.......................... (437) --
------- ---------
Income available to stockholders - basic and diluted...... $ 656 $ 543
------- ---------
Denominator--basic EPS
Weighted average shares outstanding....................... 5,448 4,558
------- ---------
Basic earnings per share.................................. $ 0.12 $ 0.12
======= =========
Denominator--diluted EPS
Denominator--basic EPS.................................... 5,448 4,558
Effect of dilutive securities:
Common Stock options and warrants..................... 719 419
------- ---------
6,167 4,977
------- ---------
Diluted earnings per share................................ $ 0.11 $ 0.11
======= =========
</TABLE>
At March 31, 1998, 2,242,500 shares of convertible preferred stock
were outstanding, but were not included in the calculation of
diluted net income per share as their effect was anti-dilutive.
Note 9: The Company has certain warrants outstanding issued to debt
holders in September of 1997. The warrants were originally
determined to have a fair market value of $1,330,000, which was
recorded as discount on notes payable. The discount is being
charged to interest expense over the life of the loans. During the
first quarter of 1998, the warrants were revalued at $2,721,000.
As a result, and so long as the loans remain outstanding, the
Company will record additional interest expense of approximately
$116,000 per quarter, except for the first quarter of 1998, for
which the incremental expense was $232,000.
Note 10: On April 29, 1998, the Company completed the public offering
of 3,000,000 shares of its Common Stock at a price of $10.50 per
share. After deducting the underwriting discount and offering
expenses, the net proceeds to the Company were approximately
$29,600,000. The Company used the proceeds of the offering to
reduce its outstanding debt obligations, exclusive of the
outstanding cash advances on the IBMCC Credit Facility. In
connection with the repayment of its outstanding
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debt obligations, the Company will report an extraordinary charge
of approximately $2,300,000, net of tax, resulting from a
prepayment penalty and the write-off of unamortized discounts
(including the amounts noted in Note 9 above) and other related
expenses.
Note 11: On November 22, 1997, the Company entered into an Agreement
and Plan of Reorganization, with MCBA Systems, Inc. (MCBA) and its
shareholders, which was amended on March 27, 1998 and on April 23,
1998 (the MCBA Agreement), whereby MCBA will become a wholly owned
subsidiary of the Company upon consummation of the proposed
acquisition (the MCBA Acquisition). All outstanding shares of MCBA
common stock (and all securities convertible into any capital
stock of MCBA) will be converted into an aggregate of up to
900,000 shares of the Company's Common Stock on a pro rata basis.
In addition, the MCBA Agreement contains an earnout provision
which allows the stockholders of MCBA to earn up to an additional
1,500,000 shares of the Company's Common Stock based upon the
attainment of certain performance goals in calendar 1998 and 1999.
In connection with the March 27 amendment (the Amendment), MCBA
issued an unsecured promissory note to the Company in the
principal amount of $480,000 bearing interest at the rate of 8.5%
per annum (the Promissory Note). The Promissory Note is due and
payable upon the earlier of March 31, 1999 or the consummation of
the MCBA Acquisition.
MCBA is a value-added wholesale distributor and reseller of IBM
commercial mid-range servers, including the AS/400 and RS/6000,
and software. MCBA is also one of four authorized distributors of
IBM's S/390 mainframe systems. In addition to the products it
offers, MCBA provides network configuration and technical support
services to its customers. MCBA's reported revenue for the year
ended December 31, 1997 was $26,900,000. The proposed MCBA
Acquisition, which is expected to be consummated by June 5, 1998,
is subject to various customary closing conditions.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
---------------------
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net sales consists of sales of commercial mid-range servers, integrated
personal computers, workstations, peripheral equipment, storage products,
software and remarketed installation and technical support services, net of
sales discounts and returns. Net sales for the three months ended March 31, 1998
of $100,504,000 were 180% higher than the net sales of $35,950,000 for the
corresponding period in 1997. Sales increased due to the acquisition of Star
Management Services, Inc. (SMS), in the third quarter of 1997, additions to the
Company's sales force and increased integration and storage product sales in the
Company's Computer Peripherals Group Division (CPG).
During the year ended December 31, 1997, the quarter ended December 31,
1997 and the quarter ended March 31, 1998, sales to Sirius Computer Solutions,
Ltd. (Sirius) accounted for approximately 11%, 23% and 20%, respectively, of the
Company's net sales. The Company's sales to Sirius are made under the Industry
Remarketer Affiliate Agreement between the Company and Sirius dated as of
September 30, 1997 (the Sirius Agreement), pursuant to which the Company
appointed Sirius as one of its industry remarketer affiliates of IBM products.
The Sirius Agreement provides that Sirius may not enter into any similar
arrangement with any third party for the purpose of selling IBM products to its
end user customers and also provides a favorable pricing structure to Sirius. As
a result, Sirius is expected to remain the Company's largest customer for the
duration of the Sirius Agreement and to account for approximately the same
percentage of the Company's net sales in 1998 as it represented in the fourth
quarter of 1997. The Sirius Agreement expires on September 30, 2000, but may be
terminated earlier under certain conditions, not including termination at will.
Any disruption, change or termination of the Company's relationship with Sirius
or a reduction in purchases from the Company by Sirius could have a material
adverse effect upon the Company's business, financial condition and results of
operations.
Cost of sales is comprised of purchase costs, net of early payment and
volume discounts and product freight and does not include any depreciation or
amortization expense. Gross profit increased 119% to $13,061,000 in the quarter
ended March 31, 1998 from $5,969,000 in the quarter ended March 31, 1997. As a
percentage of net sales, gross profit decreased to 13.0% for the three months
ended March 31, 1998 from 16.6% for the corresponding period in 1997. This
decrease is a result of a shift in the relative mix of products being sold, a
higher proportion of large orders on which the Company extends volume discounts
to customers and the historical gross profit percentage of SMS.
Selling, general and administrative expenses include: salaries and
commissions paid to sales representatives; compensation paid to marketing,
product management, technical and administrative personnel; depreciation of
infrastructure costs, including the Company's information system and leasehold
improvements; amortization of intangibles resulting from goodwill recorded from
acquisitions; facility lease expenses; telephone and data line expenses and
provision for bad debt losses. Selling, general and administrative expenses
increased 92% in the three months ended March 31, 1998 from the same period a
year ago due to necessary personnel increases as a result of the acquisition of
SMS, internal Company growth, higher depreciation costs incurred as a result of
additions to the Company's infrastructure and higher amortization expense as a
result of increased goodwill related to acquisitions.
Interest expense increased 296% in the three months ended March 31, 1998
versus the same period in 1997 due to additional borrowings associated with the
acquisition of SMS and an overall increase in line-of-credit borrowings. The
increased borrowings were necessary in order to fund acquisitions, principally
the acquisition of SMS on September 30, 1997, infrastructure additions, expanded
operations and overall Company growth. Interest expense for the current quarter
also increased due to the amortization of discount for warrants granted in
September 1997. The warrants were originally determined to have a fair market
value of $1,330,000, which was recorded as discount on notes payable. The
discount is being charged to interest expense over the life of the loans. During
the first quarter of 1998, the warrants were revalued at $2,721,000. As a
result, the Company will record additional interest expense of approximately
$116,000 per quarter, except for the first quarter of 1998, for which the
incremental expense was $232,000.
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The Company's effective tax rate is 49% versus the statutory rate of 34%
due primarily to an increase in non-deductible goodwill and other intangibles.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the three months ended March
31, 1998 totaled $9,672,000 compared to the net cash used in operating
activities of $2,882,000 for the three months ended March 31, 1997. Net cash
from operating activities was reduced by the decrease in accounts payable of
$18,123,000 which was due to a decrease in quarter-to-quarter inventory
purchases. This was partially offset by a decrease in accounts receivable of
$12,609,000 as a result of increased collection efforts.
Net cash used in investing activities during the three months ended March
31, 1998 was $293,000 compared to net cash provided by investing activities of
$177,000 during the quarter ended March 31, 1997. Investing activities in 1998
consisted of continuing leasehold and computer hardware and software investments
made at the Company's headquarters, sales office and warehouse and integration
center sites.
Net cash provided by financing activities during the three months ended
March 31, 1998 was $10,903,000 compared to $4,445,000 provided during the three
months ended March 31, 1997. Financing activities in the first quarter of 1998
consisted primarily of cash advances under the IBMCC Credit Facility. The cash
advance proceeds were used primarily for the payment of year-end inventory
purchases, the payment of debt obligations and to fund the growth of the
Company.
On April 29, 1998, the Company completed the public offering of 3,000,000
shares of its Common Stock at a price of $10.50 per share. After deducting the
underwriting discount and offering expenses, the net proceeds to the Company
were approximately $29,600,000. The Company used the proceeds of the offering to
reduce its outstanding debt obligations, exclusive of the outstanding cash
advances on the IBMCC Credit Facility. In connection with the repayment of its
outstanding debt obligations, the Company will report an extraordinary charge of
approximately $2,300,000, net of tax, resulting from a prepayment penalty and
the write-off of unamortized discounts (including the amounts noted in Note 9 to
Consolidated Financial Statements) and other related expenses.
Under the IBMCC Credit Facility, the Company's purchases from IBM and
cash advances from IBMCC are directly charged to the IBMCC Credit Facility and
are paid by the Company based on payment terms outlined in the agreement. Total
borrowings under the IBMCC Credit Facility are based on eligible accounts
receivable and inventory, as defined in the IBMCC Credit Facility, and are
limited to $75,000,000. The IBMCC Credit Facility is renewable in September 1999
and contains restrictive covenants which include the maintenance of minimum
current ratio, tangible net worth and times interest earned ratio, as defined in
the IBMCC Credit Facility, and is collateralized by substantially all assets of
the Company. The Company was not in compliance with the times interest earned
ratio covenant at March 31, 1998. IBMCC granted the Company a waiver as of March
31, 1998 for the specific violation. Borrowings under the IBMCC Credit Facility
were $20,134,000 at March 31, 1998. Cash advances bear interest at prime (8.5%
at March 31, 1998) plus 1.875%. Based on eligible assets, as of March 31, 1998,
the Company had borrowings available of approximately $2,807,000.
The Company has required substantial working capital to finance accounts
receivable, inventories and capital expenditures and has financed its working
capital requirements, capital expenditures and acquisitions primarily through
bank borrowings and cash generated from operations. The Company believes that
its existing cash and available bank borrowings are sufficient to fund the
Company's operations through the end of 1998. The Company is actively
considering other alternatives for raising additional cash including public
equity, private equity, or appropriate alternative debt financing. There can be
no assurance that the Company will be able to obtain additional financing on
acceptable terms or at sufficient levels.
FACTORS THAT MAY AFFECT FUTURE RESULTS
DEPENDENCE UPON IBM AND VENDOR CONCENTRATION. The Company's business,
financial condition and results of operations are highly dependent upon the
Company's relationship with IBM and upon the continued market
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acceptance of IBM commercial mid-range servers. During the years ended December
31, 1996 and 1997, approximately 50% and 65%, respectively, of the Company's net
sales were generated from the sale of IBM products, and the Company expects the
percentage to increase through 1998. The Company's non-exclusive agreement with
IBM may be unilaterally modified by IBM upon 30 days' written notice, is subject
to a 90-day renewal notice, provides no franchise rights and may not be assigned
by the Company. The continued consolidation of wholesale distributors of
commercial mid-range servers may also result in IBM raising the sales volume
threshold required to maintain most favorable volume discount status. In
furtherance of its business strategy, and in order to maintain most favorable
volume discount status with IBM, the Company has recently completed several
acquisitions and is actively engaged in an ongoing search for additional
acquisitions and potential equity investments for similar purposes. However,
there can be no assurance that the Company will be successful in completing any
future acquisitions or in making any such equity investments. The failure by the
Company to complete other acquisitions or make equity investments, or to
otherwise increase its sales volume through internal growth, could result in the
Company's inability to maintain most favorable volume discount status with IBM,
which would, in turn, have a material adverse effect on the Company's
relationship with IBM and on the Company's business, financial condition and
results of operations. Any disruption, change or termination in the Company's
relationship with IBM or in the manner in which IBM distributes its products,
the failure of IBM to develop new products which are accepted by the Company's
customers, the failure by the Company to maintain certain operational and
administrative capabilities, the failure by the Company to maintain sufficient
sales volumes of certain IBM products to maintain most favorable volume discount
status or the addition of other wholesale distributors by IBM would have a
material adverse effect upon the Company's business, financial condition and
results of operations.
The balance of the Company's net sales is derived from the sale of
products from a limited number of other vendors. During the years ended December
31, 1996 and 1997, approximately 28% and 19%, respectively, of the Company's net
sales were derived from the sale of products manufactured by Data General
Corporation, NCR Corporation and Unisys Corporation, collectively. To become an
authorized distributor for these vendors, the Company typically enters into a
non-exclusive agreement that is cancelable by either party upon 30 to 120 days'
prior written notice. Any disruption, change or termination in the Company's
relationship with any such vendor or in the manner in which any such vendor
distributes its products, the failure of any such vendor to develop new products
which are accepted by the Company's customers, the failure by the Company to
maintain certain operational and administrative capabilities, the failure by the
Company to maintain sufficient sales volumes of certain vendors' products to
maintain most favorable volume discount status or the addition of other
wholesale distributors by any such vendor would have a material adverse effect
upon the Company's business, financial condition and results of operations.
As is typical in its industry, the Company receives volume discounts and
market development funds from most of its vendors. These volume discounts
directly affect the Company's gross profits. In addition, market development
funds are typically used by the Company to offset a portion of its sales and
marketing expenses. Any change in the availability of these discounts or market
development funds or the failure of the Company to obtain vendor financing on
satisfactory terms and conditions would have a material adverse effect on the
Company's business, financial condition and results of operations.
FLUCTUATIONS IN OPERATING RESULTS. The Company's quarterly net sales and
operating results may vary significantly as a result of a variety of factors,
including, but not limited to, changes in the supply and demand for commercial
mid-range servers, peripheral equipment, software and related services, the
cost, timing and integration of acquisitions, the addition or loss of a key
vendor or customer, the introduction of new technologies, changes in
manufacturers' prices, price protection policies or stock rotation privileges,
changes in market development funds, changes in the level of operating expenses,
product supply shortages, disruption of warehousing or shipping channels,
inventory adjustments, increases in the amount of accounts receivable written
off, price competition and changes in the mix of products sold through
distribution channels and in the mix of products purchased by OEMs. Operating
results could also be adversely affected by general economic and other
conditions affecting the timing of customer orders and capital spending, a
downturn in the market for commercial mid-range servers and order cancelations
or rescheduling. In addition, historically a substantial portion of the
Company's net sales are made in the last few days of a quarter. Accordingly, the
Company's quarterly operating results are difficult to predict
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and delays in the closing of sales near the end of a quarter could cause
quarterly net sales to fall substantially short of anticipated levels and, to a
greater degree, adversely affect profitability. Thus, the Company believes that
period-to-period comparisons of the Company's operating results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. The Company's future operating results are expected to fluctuate as
a result of these and other factors, which could have a material adverse effect
on the Company's business, financial condition and results of operations and on
the price of the Common Stock. It is possible that in future periods the
Company's operating results may be below the expectations of securities analysts
and investors. In such event, the market price of the Common Stock would likely
be materially and adversely affected.
SUBSTANTIAL COMPETITION. The markets in which the Company operates are
highly competitive. Competition is based primarily on product availability,
price, credit availability, speed of delivery, ability to tailor specific
solutions to customer needs, breadth and depth of product lines and services,
technical expertise and pre- and postsale service and support. Increased
competition may result in further price reductions, reduced gross profit margins
and loss of market share, any of which could materially and adversely affect the
Company's business, financial condition and results of operations.
Through the Mid-Range Systems Division, the Company competes with
national, regional and local distributors, including, but not limited to,
Gates/Arrow Commercial Systems, a division of Arrow Electronics, Inc., Hamilton
Hall-Mark Computer Products, a subsidiary of Avnet, Inc., and Pioneer Standard
Electronics, Inc. (which recently announced its intention to acquire Dickens
Data Systems, Inc.), and, in some limited circumstances, its own vendors. In the
distribution of storage products, the Company competes with national, regional
and local distributors. Through CPG, the Company competes with contract
manufacturers, systems integrators and certain assemblers of computer products.
The Company has experienced, and expects to continue to experience, increased
competition from current and potential competitors, many of which have
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger customer base than
the Company. Accordingly, such competitors or future competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements or to devote greater resources to the development, promotion and
sale of their products than the Company. Competitors which are larger than the
Company may be able to obtain more favorable pricing and terms from vendors than
the Company. As a result, the Company may be at a disadvantage when competing
with these larger companies. If the Company fails to compete effectively, the
Company's business, financial condition and results of operations would be
materially and adversely affected.
RELIANCE ON SIRIUS COMPUTER SOLUTIONS, LTD. During the year ended
December 31, 1997, the quarter ended December 31, 1997 and the quarter ended
March 31, 1998, sales to Sirius accounted for approximately 11%, 23% and 20%,
respectively, of the Company's net sales. The Company's sales to Sirius are made
under the Sirius Agreement, pursuant to which the Company appointed Sirius as
one of its industry remarketer affiliates of IBM products. The Sirius Agreement
provides that Sirius may not enter into any similar arrangement with any third
party for the purpose of selling IBM products to its end user customers and also
provides a favorable pricing structure to Sirius. As a result, Sirius is
expected to remain the Company's largest customer for the duration of the Sirius
Agreement and to account for approximately the same percentage of the Company's
net sales in 1998 as it represented in the fourth quarter of 1997. The Sirius
Agreement expires on September 30, 2000, but may be terminated earlier under
certain conditions, not including termination at will. Any disruption, change or
termination of the Company's relationship with Sirius or a reduction in
purchases from the Company by Sirius could have a material adverse effect upon
the Company's business, financial condition and results of operations.
INTEGRATION RISKS RELATING TO ACQUISITIONS. Since December 1994, the
Company has completed seven acquisitions, and on November 22, 1997, the Company
entered into the MCBA Agreement which contemplates that MCBA will become a
wholly owned subsidiary of the Company upon consummation of the MCBA
Acquisition. The MCBA Acquisition is expected to be consummated by June 5, 1998.
The respective obligations of the Company and MCBA to consummate the MCBA
Acquisition, however, are subject to the satisfaction of various customary
conditions set forth in the MCBA Agreement. There can be no assurance that the
Company and MCBA will be able to satisfy in a timely manner any or all of the
conditions precedent to closing the MCBA Acquisition. In addition, the MCBA
Agreement may be terminated for various reasons or no reason, including,
-12-
<PAGE>
but not limited to, termination by either party at will if the MCBA Acquisition
has not been consummated June 5, 1998.
The combination of the Company's business and acquired businesses
requires, among other things, integration of the respective management teams and
sales and other personnel, coordination of sales and marketing efforts,
conversion of computer systems (including inventory control, order entry and
financial reporting) and integration of the businesses' products and physical
facilities. The difficulties of such integration may be increased by the
necessity of coordinating geographically separate organizations. The integration
of certain operations will require the dedication of management resources which
may temporarily divert attention away from the day-to-day business of the
combined company. There can be no assurance that such coordination and
integration will be accomplished smoothly or successfully. The inability of
management to integrate the operations of acquired businesses successfully could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, during the integration phase, aggressive
competitors may undertake to attract customers and to recruit key employees
through various incentives. There can be no assurance that acquisitions will not
materially and adversely affect the selling patterns of vendors and the buying
patterns of present and potential customers of the Company and that such effect
will not materially and adversely affect the Company's business, financial
condition and results of operations.
The Company's ability to achieve the anticipated benefits of the proposed
MCBA Acquisition, the acquisition of SMS completed on September 30, 1997 (the
SMS Acquisition) or any other acquisition depends in part upon whether the
integration of the business of the Company and any acquired business is
accomplished in an efficient and effective manner, and there can be no assurance
that this will occur. The SMS Acquisition and other prior acquisitions and
investments have placed, and will continue to place, substantial demands on the
Company's management team and financial resources. The integration of the
operations of SMS and the other acquired companies has on occasion been slower,
more complex and more costly than originally anticipated. The Company will
encounter similar uncertainties and risks with respect to any future
acquisitions and investments, including the proposed MCBA Acquisition. Although
the Company expects to realize cost savings and sales enhancements as a result
of the recent and proposed acquisitions, there can be no assurance that such
savings or enhancements will be realized in full or when anticipated, or that
any such cost savings will not be offset by increases in other expenses or
operating losses.
UNCERTAINTY OF FUTURE ACQUISITIONS AND EXPANSION. Acquisitions have
played an important role in the implementation of the Company's business
strategy, and the Company believes that additional acquisitions are important to
its growth, development and continued ability to compete effectively in the
marketplace. The Company evaluates potential acquisitions and strategic
investments on an ongoing basis. No assurance can be given as to the Company's
ability to compete successfully for available acquisition or investment
candidates or to complete future acquisitions and investments or as to the
financial effect on the Company of any acquired businesses or equity
investments. Future acquisitions and investments by the Company may involve
significant cash expenditures and may result in increased indebtedness, interest
and amortization expense or decreased operating income, any of which could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, future growth will require additional
financing to fund the working capital requirements of the Company's business and
to finance future acquisitions and strategic equity investments, if any. There
can be no assurance that the Company will be able to raise financing on
satisfactory terms and conditions, if at all. See "--Future Capital Needs;
Uncertainty of Additional Financing." If businesses are acquired through the
issuance of equity securities, the percentage ownership of the stockholders of
the Company will be reduced and stockholders may experience additional dilution.
Should the Company be unable to implement successfully its acquisition and
investment strategy, its business, financial condition and results of operations
could be materially and adversely affected.
MANAGEMENT OF GROWTH. Since 1995, the Company has experienced significant
growth in the number of its employees and in the scope of its operating and
financial systems, resulting in increased responsibilities for the Company's
management. In addition, the SMS Acquisition, which was completed in September
1997, increased the Company's employee base by approximately 140 persons to 393
employees as of March 31, 1998. To manage future growth effectively, the Company
will need to continue to improve its operational, financial and management
-13-
<PAGE>
information systems, procedures and controls and expand, train, motivate, retain
and manage its employee base. There can be no assurance that the Company will be
successful in managing any future expansion or identifying, attracting and
retaining key personnel, and failure to do so could have a material adverse
effect on the Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL. The Company's future success depends in part
on the continued service of its key management, sales and marketing personnel
and its ability to identify and hire additional personnel. Competition for
qualified management, sales and marketing personnel is intense and there can be
no assurance that the Company can retain and recruit adequate personnel to
operate its business. The success of the Company is largely dependent on the
skills, experience and efforts of its key personnel, particularly P. Scott
Munro, Chairman of the Board, Chief Executive Officer, President and Secretary,
and Carlton Joseph Mertens II, Chief Executive Officer and President of the
Company's subsidiary, Business Partner Solutions, Inc., both of whom have
entered into employment agreements with the Company. The loss of either of these
individuals or other key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
maintains life insurance on Messrs. Munro and Mertens in the amounts of $7.9
million and $10.0 million, respectively.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. The Company's
operations to date have required substantial amounts of working capital to
finance accounts receivable and product inventories. Although the Company
believes it has sufficient funds, or alternate sources of funds, to carry on its
business as presently conducted through 1998, the Company will need to raise
additional amounts through public or private debt or equity financings in order
to achieve the growth contemplated by the Company's business plan. There can be
no assurance that additional financing of any type will be available on
acceptable terms, or at all, and failure to obtain such financing could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
DEPENDENCE ON AVAILABILITY OF CREDIT AND IBMCC CREDIT FACILITY. In order
to obtain necessary working capital, the Company relies primarily on a line of
credit that is collateralized by substantially all of the Company's assets. As a
result, the amount of credit available to the Company may be adversely affected
by numerous factors beyond the Company's control, such as delays in collection
or deterioration in the quality of the Company's accounts receivable, economic
trends in the technology industry, interest rate fluctuations and the lending
policies of the Company's creditors. Any decrease or material limitation on the
amount of capital available to the Company under its line of credit or other
financing arrangements will limit the ability of the Company to fill existing
sales orders or expand its sales levels and, therefore, would have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, any significant increases in interest rates will
increase the cost of financing to the Company and could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company is dependent on the availability of accounts receivable financing on
reasonable terms and at levels that are high relative to its equity base in
order to maintain and increase its sales. There can be no assurance that such
financing will continue to be available to the Company in the future or
available under terms acceptable to the Company. The inability of the Company to
have continuous access to such financing at reasonable costs would materially
and adversely impact the Company's business, financial condition, results of
operations and cash flows.
LIMITATIONS UPON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The terms of the
IBMCC Credit Facility require that the Company obtain the consent of IBMCC prior
to incurring certain additional indebtedness, including any additional senior or
subordinated debt. The Company may incur additional indebtedness without such
consent through capital leases and general business commitments insofar as the
terms thereof are commercially reasonable and consistent with prior business
practices. The IBMCC Credit Facility and the Company's anticipated cash flows
may not provide sufficient funding to achieve the growth contemplated by the
Company's business plan. Accordingly, the Company may need to obtain the consent
of IBMCC prior to incurring any additional indebtedness. While the Company has
no reason to believe that such consent will be withheld, there can be no
assurance that the Company will obtain such consent. Failure to obtain such
consent or to obtain an alternate credit facility in order to allow the Company
to incur additional indebtedness in an amount sufficient to achieve the growth
-14-
<PAGE>
contemplated by the Company's business plan could have a material adverse effect
on the Company's business, financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE, PRICE REDUCTIONS AND INVENTORY RISK. The
markets for products sold by the Company are extremely competitive and are
characterized by declining selling prices over the life of a particular product
and rapid technological change. Since the Company acquires inventory in advance
of product shipments, and because the markets for the Company's products are
volatile and subject to rapid technological and price changes, there is a risk
that the Company will forecast incorrectly and stock excessive or insufficient
inventory of particular products. The Company's business, like that of other
wholesale distributors, is subject to the risk that the value of its inventory
will be adversely affected by price reductions by manufacturers or by
technological changes affecting the usefulness or desirability of its product
inventory. It is the policy of many manufacturers of technology products to
protect wholesale distributors such as the Company from the loss in value of
inventory due to technological change or reductions in the manufacturers'
prices. Under the terms of most of the Company's agreements, vendors will
generally credit the Company for inventory losses resulting from the vendor's
price reductions if the Company complies with certain conditions. In addition,
generally under such agreements, the Company has the right to return for credit
or exchange for other products a portion of its slow moving or obsolete
inventory items within designated periods of time. There can be no assurance
that, in every instance, the Company will be able to comply with all necessary
conditions or manage successfully such price protection or stock rotation
opportunities, if available. Also, a manufacturer which elects to terminate a
distribution agreement generally will repurchase its products carried in a
wholesale distributor's inventory. These industry practices are sometimes not
included in written agreements and do not protect the Company in all cases from
declines in inventory value, excess inventory or product obsolescence. There can
be no assurance that manufacturers will continue such practices or that the
Company will be able to manage successfully its existing and future inventories.
Historically, the Company has not experienced losses due to obsolete inventory
in excess of established inventory reserves. Significant declines in inventory
value in excess of established inventory reserves or dramatic changes in
prevailing technology could have a material adverse effect on the Company's
business, financial condition and results of operations.
Certain major systems vendors, including IBM, have developed and will
continue to implement programs which allow the Company to assemble systems from
components provided by the vendors. While the Company has developed the ability
to integrate and configure computer products, the process of assembling large
volumes of systems from components will require new business practices by the
Company. It is also uncertain how the vendors will apply policies related to
price protection, stock rotation and other protections against the decline in
inventory value of such system components. There can be no assurance that the
Company will be successful in the integration and configuration of computer
products or that certain vendors will apply the same price protection and stock
rotation policies to the Company's component inventories.
LOW PROFIT MARGINS. As a result of price competition, the Company has low
gross profit and operating income margins. These low margins magnify the impact
on operating results of variations in net sales and operating costs. The Company
has partially offset the effects of its low gross profit margins by increasing
net sales, availing itself of large volume purchase discount opportunities and
reducing selling, general and administrative expenses as a percentage of net
sales. However, there can be no assurance that the Company will maintain or
increase net sales, continue to avail itself of large volume purchase discount
opportunities or further reduce selling, general and administrative expenses as
a percentage of net sales in the future. Future gross profit margins may be
materially and adversely affected by changes in product mix, vendor pricing
actions and competitive and economic pressures.
PRODUCT SUPPLY SHORTAGES. The Company is dependent upon the supply of
products available from its vendors. From time to time, the industry has
experienced product shortages due to vendors' difficulty in projecting demand
for certain products distributed by the Company. When such product shortages
occur, the Company typically receives an allocation of product from the vendor.
There can be no assurance that vendors will be able to maintain an adequate
supply of products to fulfill all of the Company's orders on a timely basis.
Failure to obtain adequate product supplies, if such supplies are available to
competitors, would have a material adverse effect on the Company's business,
financial condition and results of operations.
-15-
<PAGE>
EXTENSION OF CREDIT TO CUSTOMERS WITHOUT REQUIRING COLLATERAL. The
Company sells products to a broad geographic and demographic base of customers
and offers unsecured credit terms to its customers. To reduce credit risk, the
Company performs ongoing credit evaluations of its customers, maintains an
allowance for doubtful accounts and has credit insurance. Sirius accounted for
more than 10% of the Company's outstanding accounts receivable at December 31,
1997 and at March 31, 1998. No other single customer accounted for more than 5%
of the Company's outstanding accounts receivable balance at December 31, 1997 or
at March 31, 1998. Historically, the Company has not experienced losses from
write-offs in excess of established reserves. Should the Company's customers
increase the rate at which they default on payments due to the Company, and
should the Company be unable to collect such amounts, it could have a material
adverse effect on the Company's business, financial condition and results of
operations.
SEASONALITY. The computer distribution industry experiences seasonal
trends and, within each quarter, generally tends to sell a substantial amount of
its products in the last few days of the quarter. The Company's largest vendor,
IBM, sells approximately 35-40% of its products in the last calendar quarter,
and such continuing pattern could have an effect on the Company's quarterly net
sales. Historically, a substantial portion of the Company's net sales are made
in the last few days of a quarter. Due to the Company's recent significant
growth through acquisitions and the Company's increased dependence on the sale
of IBM products, variations experienced by IBM and the Company may be magnified
in the future and could have a material adverse effect on the Company's
business, financial condition and results of operations.
EXPANDING SERVICE CAPABILITIES. The Company is expanding the nature and
scope of its value-added services. There can be no assurance that new
value-added services will be integrated successfully with the Company's
commercial mid-range server and related products distribution business. If the
Company is unable to effectively provide value-added services, it may be unable
to compete effectively for the business of certain customers which require the
provision of such services as a condition to purchasing products from the
Company. In addition, the Company will be subject to risks, commonly associated
with a value-added services business, including dependence on reputation,
fluctuations in workload and dependence on the ability to identify, recruit and
retain qualified technical personnel. The expansion of the Company's value-added
services is expected to require a significant capital investment, including an
increase in the number of technical employees. There can be no assurance that
one or more of such factors will not have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON THIRD-PARTY SHIPPERS. The Company presently ships a
majority of its products from its warehouses via Federal Express Corporation
(FedEx), but also ships via United Parcel Service of America, Inc. (UPS) and
other common carriers. In addition, certain products that the Company sells are
drop shipped to its customers via these carriers. Changes in shipping terms or
the inability of FedEx, UPS or any other third-party shipper to perform
effectively (whether as a result of mechanical failure, casualty loss, labor
stoppage, other disruption or any other reason) could have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that the Company can maintain favorable shipping terms
or replace such shipping services on a timely or cost-effective basis.
PLANNED INTERNATIONAL EXPANSION. Although the Company to date has not
generated significant net sales from international operations, one of the
elements of its business strategy is to expand internationally. The Company was
recently authorized to distribute IBM's AS/400 products in Canada. There can be
no assurance that the Company will be able to expand successfully its
international business. Certain risks inherent in doing business on an
international level include, but are not limited to, management of remote
operations, unexpected changes in regulatory requirements, export restrictions,
tariffs and other trade barriers, difficulties in staffing and managing foreign
operations, longer payment cycles, problems in collecting accounts receivable,
political instability, fluctuations in currency exchange rates and potentially
adverse tax consequences, any of which could adversely impact the success of the
Company's international operations. There can be no assurance that one or more
of such factors will not have a material adverse effect on the Company's future
international operations and, consequently, on the Company's business, financial
condition and results of operations.
-16-
<PAGE>
RISK ASSOCIATED WITH POTENTIAL "YEAR 2000" PROBLEMS OF THIRD PARTIES. It
is possible that the currently installed computer systems, software products or
other business systems of the Company's vendors or customers, working either
alone or in conjunction with other software or systems, will not accept input
of, store, manipulate and output data in the year 2000 or thereafter without
error or interruption (commonly known as the Year 2000 problem). The Company
believes that its business systems, including its computer systems, are not
subject to the Year 2000 problem; however, the Company has begun to query its
vendors and customers as to their progress in identifying and addressing
problems that their computer systems may face in correctly processing date
information as the Year 2000 approaches. However, there can be no assurance that
the Company will identify all such Year 2000 problems in the computer systems of
its vendors or customers in advance of their occurrence or that they will be
able to successfully rectify any problems that are discovered. The expenses of
the Company's efforts to identify and address such problems, or the expenses or
liabilities to which the Company may become subject as a result of such
problems, are not expected to have a material adverse effect on the Company's
business, financial condition or results of operations. The purchasing patterns
of existing and potential customers, however, may be affected by Year 2000
problems, which could cause fluctuations in the Company's sales volumes and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
---------------------------------------------------------
Not applicable.
-17-
<PAGE>
PART II. OTHER INFORMATION
Item 1: Legal Proceedings.
-----------------
None.
Item 2: Changes in Securities.
---------------------
None.
Item 3: Defaults on Senior Securities.
-----------------------------
None.
Item 4: Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
Item 5: Other Information.
-----------------
None.
Item 6: Exhibits and Reports on Form 8-K.
--------------------------------
A. Exhibits
--------
The exhibits listed in the accompanying index to exhibits
are filed or incorporated by reference (as stated therein) as part of this
report on Form 10-Q.
B. Reports on Form 8-K.
-------------------
The following reports on Form 8-K, or amendments to
previously filed reports on Form 8-K, were filed during the
quarter ended March 31, 1998.
<TABLE>
<CAPTION>
Date of
Filed Date Report Items Reported Financial Statements Filed
---------- ------ ---------------------------------------- ----------------------------------
<S> <C> <C> <C>
2/17/98 8/29/97 Item 5 - Other Events None
(Form 8-K/A) Item 7 - Exhibits (all previously filed)
2/17/98 9/30/97 Item 7 - Financial tatements of busi- 99.2 Pro Forma Financial State-
(Form 8-K/A) ness acquired and Star ments of Savoir
Management Services, Inc. Technology Group, Inc.:
(previously filed) pro forma
financial information a. Pro Forma Condensed Con-
solidated Statement of
Operations for the Year
Ended December 31, 1996
(Unaudited)
-18-
<PAGE>
Date of
Filed Date Report Items Reported Financial Statements Filed
---------- ------ ---------------------------------------- ----------------------------------
b. Notes to Pro Forma Con-
densed Consolidated State-
ment of Operations for the
Year Ended December 31,
1996 (Unaudited)
c. Pro Forma Condensed Con-
solidated Statement of
Operations for the Nine
Months Ended
September 30, 1997
(Unaudited)
d. Notes to Pro Forma Con-
densed Consolidated State-
ment of Operations for the
Nine Months Ended
September 30, 1997
(Unaudited)
2/17/98 2/12/98 Item 5 - Other Events None
(Form 8-K) Item 7 - Exhibits (Press Release)
3/11/98 3/9/98 Item 5 - Other Events None
(Form 8-K) Item 7 - Exhibits (Press Release)
</TABLE>
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Registrant:
SAVOIR TECHNOLOGY GROUP, INC.
Dated: May 14, 1998 By /s/ P. SCOTT MUNRO
-----------------------------------------
P. Scott Munro
Chief Executive Officer
Dated: May 14, 1998 By /s/ JAMES W. DORST
-----------------------------------------
James W. Dorst
Chief Financial Officer
-20-
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
-------
2.1 First Amendment to Agreement and Plan of Reorganization
dated March 27, 1998, by and among Savoir Technology Group,
Inc., STG Acquisition Corp., MCBA Systems, Inc., Michael N.
Gunnells and John Harkins, filed as Exhibit 2.12 to the
Company's Registration Statement on Form S-2 filed with the
Commission on April 29, 1998 and incorporated herein by this
reference.
3(i) Restated Certificate of Incorporation of Savoir Technology
Group, Inc., a Delaware corporation, filed as Exhibit 3(ii)
to the Company's Current Report on Form 8-K dated July 23,
1997, filed on August 14, 1997 and incorporated herein by
this reference.
3(ii) Amended and Restated Bylaws of Savoir Technology Group,
Inc., a Delaware corporation, filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by this reference.
4.1 Certificate of Designation, Preferences and Rights of the
Company's Series A Preferred Stock, filed as Exhibit 3.2 to
the Company's Current Report on Form 8-K dated October 10,
1997, and incorporated herein by this reference.
4.2 Certification of Designation, Preferences and Rights of the
Company's Series B Preferred Stock, filed as Exhibit 3.1 to
the Company's Current Report on Form 8-K dated October 10,
1997, and incorporated herein by this reference.
4.3 Registration and Put Rights Agreement among the Company and
the Purchasers dated September 30, 1997, filed as Exhibit
4.2 to the Company's Current Report on Form 8-K dated
October 10, 1997, and incorporated herein by this reference.
4.4 Warrant Agreement of Western Micro Technology, Inc. between
the Company and the Purchasers dated September 30, 1997
filed as Exhibit 4.3 to the Company's Current Report on Form
8-K dated October 10, 1997, and incorporated herein by this
reference.
4.5 Common Stock Purchase Warrant in favor of Robert Fleming
Inc., filed as Exhibit 4.4 to the Company's Current Report
on Form 8-K dated October 10, 1997, and incorporated herein
by this reference.
4.6 Common Stock Purchase Warrant in favor of CanPartners
Investments IV, LLC filed as Exhibit 4.5 to the Company's
Current Report on Form 8-K dated October 10, 1997, and
incorporated herein by this reference.
4.7 13.5% Second Priority Senior Secured Notes Due September 30,
2000 in favor of Robert Fleming Inc., filed as Exhibit 4.6
to the Company's Current Report on Form 8-K dated October
10, 1997, and incorporated herein by this reference.
4.8 13.5% Second Priority Senior Secured Notes Due September 30,
2000 in favor of Robert Fleming Inc., filed as Exhibit 4.7
to the Company's Current Report on Form 8-K dated October
10, 1997, and incorporated herein by this reference.
<PAGE>
4.9 Promissory Note of Registrant in the amount of Ten Million
Dollars ($10,000,000) in favor of ICC dated September 30,
1997, filed as Exhibit 4.8 to the Company's Current Report
on Form 8-K dated October 10, 1997, and incorporated herein
by this reference.
4.10 Warrant Agreement of Western Micro Technology, Inc. between
the Company and ICC dated September 30, 1997, filed as
Exhibit 4.9 to the Company's Current Report on Form 8-K
dated October 10, 1997, and incorporated herein by this
reference.
4.11 Registration and Put Rights Amendment between the Company
and ICC, filed as Exhibit 4.10 to the Company's Current
Report on Form 8-K dated October 10, 1997, and incorporated
herein by this reference.
4.12 Common Stock Purchase Warrant in favor of ICC, filed as
Exhibit 4.11 to the Company's Current Report on Form 8-K
dated October 10, 1997, and incorporated herein by this
reference.
10.1 Lease Agreement dated February 2, 1998, by and between Green
Mountain Ventures I, Ltd., a Texas limited partnership and
the Company's subsidiary Business Partner Solutions, Inc., a
Texas corporation, filed as Exhibit 10.1 to the Company's
Current Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by this reference.
10.2 Employment Letter between the Company and P. Scott Munro
dated January 22, 1998, filed as Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by this reference.
10.3 Employment Letter between the Company and James W. Dorst
dated January 22, 1998, filed as Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by this reference.
10.4 Employment Letter between the Company and Robert O'Reilly
dated January 22, 1998, filed as Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by this reference.
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,857
<SECURITIES> 0
<RECEIVABLES> 64,458
<ALLOWANCES> 533
<INVENTORY> 36,864
<CURRENT-ASSETS> 118,060
<PP&E> 9,724
<DEPRECIATION> 4,939
<TOTAL-ASSETS> 180,522
<CURRENT-LIABILITIES> 111,236
<BONDS> 0
0
18,132
<COMMON> 30,596
<OTHER-SE> 1,573
<TOTAL-LIABILITY-AND-EQUITY> 180,522
<SALES> 100,504
<TOTAL-REVENUES> 100,504
<CGS> 87,443
<TOTAL-COSTS> 87,443
<OTHER-EXPENSES> 9,226
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,709
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<INCOME-TAX> 1,033
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</TABLE>
